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Monday, October 15, 2012

Let’s
take a break from the presidential election campaign to discuss a topic that
both candidates seem to be largely ignoring: the environment - specifically the
enormous amount of carbon wastes that humans are spewing into the environment by
burning fossil fuels. The funny thing is that in long term, the rapid warming
of the planet through human action is the most single important issue we face,
and the candidates want to run away from the discussion.

California
is not taking the head-in-the-sand approach of our national leaders when it
comes to pollution emissions.As the New York Times reported today,
California is set to introduce a cap-and-trade plan which charges industries
money for the greenhouse gases they produce. The California plan seems to be
the preferred mode of economists and governments to address pollution
control.A similar cap-and-trade plan
never made it through the U.S. Congress. The European Union has had a
cap-and-trade program in place since 2005.

But
just what is cap-and-trade? The Times
gives a good overview of what will happen in California. After I read it, I was
scratching my head at its complexity:

“…the
state will set an overall ceiling on those emissions and assign allowable
emission amounts for individual polluters. A portion of these so-called
allowances will be allocated to utilities, manufacturers and others; the
remainder will be auctioned off.

Over
time, the number of allowances issued by the state will be reduced, which
should force a reduction in emissions.

To obtain
the allowances needed to account for their emissions, companies can buy them at
auction or on the carbon market. They can secure offset credits, as they are
known, either by buying leftover allowances from emitters that have met their
targets or by purchasing them from projects that remove carbon dioxide or other
greenhouse gases from the atmosphere…”

I
like the part of it that involves gradually lowering the amount of emissions
that are allowed.

But
the idea of trading emissions credits is overly complex and therefore almost by
definition easy to abuse. Cap-and-trade
creates a marketplace in which pollution credits are bought and sold.Theoretically it enables a major polluter to
continue to spew poison into the air merely by buying pollution credits from
companies that don’t pollute or don’t pollute as much. As with all markets,
even the theoretical “free market,” the altar at which most Republicans pray,
the cap-and-trade marketplace runs by rules and regulations that lend both
additional complexity and the possibility of nefarious manipulation.

In
some ways, cap-and-trade reminds me of the securitization of home mortgages. It
used to be that banks loaned people money to buy a home and then patiently
waited until the consumer paid the loan back. With securitization, the banks
made the loan and then sold it to someone else, who lumped together many loans
and sold them as an investment that could be traded on the market.Creating a market for mortgage-based
financial instruments was supposed to spread the risk and lead to safer
investments, which in turn would help consumers.We all know how that worked out: Because
banks were selling off the loans, their lending standards fell, people who
couldn’t afford loans got them, those loans were buried in the financial
vehicles that were sold, and when the loans went south, the entire house of
cards of the mortgage market crumbled, taking the U.S. economy with it.

I
don’t think that cap-and-trade will lead to another financial meltdown (although
trading in a triviality—the tulip bulb—took down the Dutch economy in the 17th
century). What it does is interject a level of complexity that is both
unnecessary and open to abuse.

Cap-and-trade
is the type of plan that Rube Goldberg might build. Rube
Goldberg was an American cartoonist who drew a series of popular cartoons
depicting complex gadgets performing very simple tasks in convoluted ways.

The
simple way to deal with emissions is to set regulations and make polluters
follow them or suffer stiff fines. The argument against this approach is that
it will be too expensive for companies or that the companies will pass on the
costs of consumers, hurting everyone, but especially poor people.

These
arguments are bogus: First of all, society is already paying the additional
cost of pollution through higher healthcare costs and cleanup of natural
disasters. These “hidden” costs, often called “social costs” are paid collectively
by all of us. We pay and the company doesn’t, meaning that besides allowing our
environment to be fouled, we as a community are subsidizing the income of the
polluting company’s senior management and shareholders.It’s a classic “pay me now or pay me later,”
except instead of the companies paying now, we all pay later.

Keep in
mind, too, that the money that the polluting companies shell out to put
scrubbers on coal-burning plants, introduce a little natural gas into the coal
mix or any of the other currently available emission technologies goes to the
companies that develop, sell and maintain these pollution-preventing
technologies. The money is not burned and lost to the economy. It is used to
create a more diversified economy, and one that is not so hazardous to the
health of the Earth.

As to
poor people who might not be able to afford the new higher prices when
companies clean up their act, it seems to me that it’s far simpler to give the
poor an energy tax credit than to create a convoluted and easy-to-scam
cap-and-trade marketplace.

I
applaud California for actually doing something about greenhouse gas
emissions.I only wish it had followed
the dictum of 14th century Christian philosopher, Thomas of Occam, to seek the
simpler solution, which in this case means making polluters pay.

If it weren’t for the entertainment value, I’d be pleased that Texas Governor Rick Perry is foundering in the Republican presidential race. After all, Governor Perry, who is in an unprecedented fourth term as chief executive of the nation's second-largest state, still might get the Republican nomination for president. If that happens there’s no telling what the voters might be fooled into doing. Just look at how far George W. Bush got.